Dawg is a term to identify someone you would usually hang out with. Same for homie, homeboy, and homes/holmes. The term Dawg was started in Mexican American communities, but most of the urban terms like dawg, homie, homeboy, etc. are usually givin credit for to the black/African-American community. The term dawg was originally and most commonly used in Spanish, wich is Perro. But the Mexican Americans later started using it in English, dawg/dog.
Person 1: Whats up dawg?
Person 2: just chillin, about to pop open a Corona.